CA Foundation Accounts True or False Questions pdf
CA Foundation Accounts True/False Questions PDF – Your Shortcut to Success!"
The CA Foundation Past exam Accounts paper always includes 6 True/False questions in Q1(a), worth 2 marks each. Our analysis of past papers reveals that 5 out of these 6 questions are directly from the ICAI Study Material! To help you secure these 10 easy marks, we’ve created a comprehensive PDF of all True/False questions from the ICAI Study Material, complete with answers and reasoning. In just 4 hours of focused preparation, you can confidently ace this section and boost your overall score. Don’t leave these marks to chance – start preparing smart today!
Table of Content
CA Foundation Important Questions Blogs :
1. There is no difference between book keeping and accounting, both are same.
Answer: False
Reason: Book-keeping and accounting are different from each other. Accounting is a broad subject. It calls for a greater understanding of records obtained from book-keeping and an ability to analyse and interpret the information provided by book-keeping records.
Book-keeping is the recording phase while accounting is concerned with the summarizing phase of an accounting system.
2. Management Accounting covers the preparation and interpretation of financial statements and communication to the users of accounts.
Answer: False
Reason: Financial accounting covers the preparation and interpretation of financial statements and communication to the users of accounts.
3. Financial accounting is concerned with internal reporting to the managers of a business unit.
Answer: False
Reason: Management accounting is concerned with internal reporting to the managers of a business unit.
4. Customers of business should not be considered as users of accounts prepared by business. They are not interested to know performance of the business
Answer: False
Reason: Customers are also concerned with the stability and profitability of the enterprise because their functioning is more or less dependent on the supply of goods
5. Summarising is the basic function of accounting. All business transactions of a financial characters evidenced by some documents such as sales bill, pass book, salary slip etc. are recorded in the books of account
Answer: False
Reason: Recording is the basic function of accounting. Summarising is concerned with the preparation and presentation of the classified data in a manner useful to the internal as well as the external users of financial statement.
6. Balance sheet shows the position of the business on the day of its preparation and not on the future date.
Answer: True
Reason: Balance Sheet is a statement of the financial position of an enterprise at a given date.
7. Objectives of book-keeping are complete recording of transactions & ascertainment of financial effect on the business.
Answer: True
Reason: Book-keeping is concerned with complete recording and combined effect of transactions made during the accounting period.
1. The concept helps in keeping business affairs free from the influence of the personal affairs
of the owner is known as the matching concept.
Answer: False
Reason: Under matching concept all expenses matched with the revenue of that period should only be taken into consideration. In the financial statements of the organization if any revenue is recognized then expenses related to earn that revenue should also be
recognized.
2. Entity concept means that the enterprise is liable to the owner for capital investment made by the owner.
Answer: True
Reason: Since the owner invested capital, he has claim on the profits of the enterprise.
3. Accrual means recognition as money is received or paid and not of revenue and costs as they are earned or incurred.
Answer: False
Reason: Under accrual concept, the effects of transactions and other events are recognised on mercantile basis i.e., when they occur (and not as cash or a cash equivalent is received or paid) and they are recorded in the accounting records and reported in the financial statements of the periods to which they relate.
4. The Conservatism Concept states that no change should be counted unless it has materialized
Answer: False
Reason: The Realisation Concept states that no change should be counted unless it has materialised.
5. The concept of consistency implies non-flexibility as not to allow the introduction of improved method of accounting.
Answer: False
Reason:
6. The materiality depends only upon the amount of the item and not upon the size of the business, nature and level of information, level of the person making the decision etc.
Answer: False
Reason: As per materiality principle, all the items having significant economic effect on the business of the enterprise should be disclosed in the financial statements
7. Accrual basis of accounting is the method of recording transactions by which revenues and costs and assets and liabilities are reflected in the accounts in the period in which actual receipts or actual payments are made.
Answer: False
Reason: Cash Basis of Accounting is the method of recording transactions by which revenues and costs and assets and liabilities are reflected in the accounts in the period in which actual receipts or actual payments are made.
1. The nature of business is not an important criteria in separating an expenditure between capital and revenue.
Answer: False
Reason: The nature of business is a very important criteria in separating an expenditure between capital and revenue. For example- For a trader dealing in furniture, purchase of furniture is revenue expenditure but for any other trade, the purchase of furniture should be treated as capital expenditure and shown in the balance sheet as asset.
2. Expenditure incurred for major repair of the asset so as to increase its productive capacity is Revenue in nature.
Answer: False
Reason: Expenditure incurred for major repair of the asset so as to increase its productive capacity is capital in nature.
3. Amount spent as lawyer’s fee to defend a suit claiming that the firm’s factory site belonged to the plaintiff’s land is Capital Expenditure.
Answer: False
Reason: Legal expenses incurred to defend a suit claiming that the firm’s factory site belongs to the plaintiff is maintenance expenditure of the asset. By this expense, neither any endurable benefit can be obtained in future in addition to that what is
presently available nor the capacity of the asset will be increased. Maintenance expenditure in relation to an asset is revenue expenditure.
4. Amount spent for replacement of worn-out part of machine is Capital Expenditure.
Answer: False
Reason: Amount spent for replacement of any worn out part of a machine is revenue expense since it is part of its maintenance cost.
5. Legal fees to acquire property is Capital Expenditure.
Answer: True
Reason: Legal fee paid to acquire any property is a part of cost of that property. It is incurred to possess the ownership right of the property and hence a capital expenditure.
6. Amount spent for the construction of temporary huts, which were necessary for construction of the cinema house and were demolished when the cinema house was ready, is Capital Expenditure.
Answer: True
Reason: Since temporary huts were necessary for the construction, their cost should be added to the cost of the cinema hall and thus capitalised.
1. A contingent liability need not be disclosed in the financial statements.
Answer: False
Reason: A Contingent liability is required to be disclosed unless possibility of outflow of a resource embodying economic benefits is remote.
2. A Provision fails to meet the recognition criteria.
Answer: False
Reason: A contingent liability fails to meet the recognition criteria.
3. A claim that an enterprise is pursuing through legal process, where the outcome is uncertain, is a contingent liability.
Answer: False
Reason: A claim that an enterprise is pursuing through legal process, where the outcome is uncertain, is a contingent asset
4. When it is probable that the firm will need to pay off the obligation, this gives rise to Contingent liability.
Answer: False
Reason: When it is probable that the firm will need to pay off the obligation, this gives rise to provision.
5. Present financial obligation of an enterprise, which arises from past event is termed as contingent liability.
Answer: False
Reason: Present Financial obligation of an enterprise, which arises from past events is termed as liability.
1. There is a single list of accounting policies, which are applicable to all enterprises in all circumstances.
Answer: False
Reason: There cannot be single list of accounting policies, which are applicable to all enterprises in all circumstances. There would always be different policies chosen by different industries under different circumstances.
2. Selection of accounting policy doesn’t impact financial performance and financial position of the business
Answer: False
Reason: Accounting policy has big impact on value of items goes under financial statements, hence it impacts financial performance and financial position of the business.
3. A change in accounting policies should be made as and when business like to show result as per their choice.
Answer: False
Reason: A change in accounting policies should be made in the following conditions:
4. Choosing FIFO or weighted average method for inventory valuation is selection of accounting policy.
Answer: True
Reason: An enterprise may adopt FIFO or weighted average method for inventory valuation and the method selected for valuation is called an accounting policy.
5. Selection of an inappropriate accounting policy decision will overstate the performance and financial position of a business entity every time.
Answer: False
Reason: It could understate/overstate the performance and financial position of a business entity.
1. There are four generally accepted measurement bases.
Answer: False
Reason: There are four generally accepted measurement bases.
2. Historical Cost means price paid at time acquisition.
Answer: True
Reason: Historical cost means the acquisition price.
3. As per future value, assets are carried at the amount of cash or cash equivalents that could currently be obtained by selling the assets in an orderly disposal.
Answer: False
Reason: At Realisable value, assets are carried at the amount of cash or cash equivalents that could currently be obtained by selling the assets in an orderly disposal.
4. At Present value, liabilities are carried at the value of future net cash outflows that are expected to be required to settle the liabilities in the normal course of business.
Answer: False
Reason: Liabilities are carried at the present discounted value of future net cash outflows that are expected to be required to settle the liabilities in the normal course of business.
5. ABC purchased a machinery amounting 10,00,000 on 1st April, 2001. On 31st March, 2022, similar machinery could be purchased for 20,00,000. Historical cost of machine is 20,00,000
Answer: False
Reason: Historical cost is ₹10,00,000.
6. ABC purchased a machinery amounting 10,00,000 on 1st April, 2001. On 31st March, 2022, similar machinery could be purchased for 20,00,000. Current cost of machine is 20,00,000
Answer: True
Reason: Since similar machine is purchased at 20,00,000, the current cost of machine is ₹ 20,00,000.
7. Change in accounting estimate has to be given retrospective effect.
Answer: False
Reason: Change in accounting estimate has not to be given retrospective effect.
1. Accounting standards are written policy documents issued by the expert accounting body or by the government or other regulatory body covering the aspects of recognition, measurement, presentation and disclosure of accounting transactions and events in the financial statements
Answer: True
Reason: Accounting standards are documents covering recognition, measurement, presentation and disclosure of accounting transactions and events in the financial statements.
2. Accounting standards can override the statute.
Answer: False
Reason: Accounting standards can never override the statute. The standards are required to be framed within the ambit of prevailing statutes.
3. Difficulties in making choice between different treatments is one of the benefits of accounting standards.
Answer: False
Reason: Difficulties in making choice between different treatments is one of the limitation of accounting standard.
4. Requirements for additional disclosures is limitation of accounting standards.
Answer: False
Reason: Benefits of accounting standards are:
5. ASB stands for Accounting standardisation benchmarking.
Answer: False
Reason: ASB stands for Accounting Standard Board.
6. There are no limitation to accounting standards.
Answer: False
Reason: limitations of accountingstandards
1. In accounting equation approach, equity + Long-term liabilities = fixed asset + current assets – current liabilities.
Answer: True
Reason: As per the modern accounting equation approach- it is the basic formula in the accounting process
2. In the traditional approach a debtor becomes receiver.
Answer: False
Reason: In the traditional approach a debtor becomes giver.
3. The rule of nominal account states that all expenses & losses are recorded on credit side.
Answer: False
Reason: The rule of nominal account states that all expenses & losses are recorded on debit side.
4. Journal proper is also called a subsidiary book.
Answer: True
Reason: It is one of the book where in the transactions not entered in the other books are entered in this book.
5. Capital account has a debit balance.
Answer: False
Reason: Capital account has a credit balance.
6. Purchase account is a nominal account.
Answer: True
Reason: As it is considered as an expense.
7. All the personal & real account are recorded in P&L A/c.
Answer: False
Reason: All the personal & real account are recorded in balance sheet.
8. Asset side of balance sheet contains all the personal & nominal accounts.
Answer: False
Reason: Asset side of balance sheet contains all the personal & real accounts.
9. Capital account is a personal account.
Answer: True
Reason: As it is in the name of the proprietor who is bringing in the capital to the business.
10. Journal is also known as the book of original entry.
Answer: True
Reason: As the transactions are entered first in this book as a first hand record.
1. A ledger is also known as the principal book of accounts.
Answer: True
Reason: Since it classifies all the amounts related to a particular account and then it is used as the base for preparing the Trial balance, a ledger is also known as principal books of accounts.
2. Cash account has a debit balance.
Answer: True
Reason: Being an asset under the modern equation approach, cash account has a debit balance.
3. Posting is the process of transferring the accounts from ledger to journal
Answer: False
Reason: Posting is the process of transferring the balances from journal to ledger.
4. At the end of the accounting year, all the nominal accounts of the ledger book are balanced.
Answer: False
Reason: At the end of the accounting year, all the nominal accounts of the ledger book are totaled and transferred to P&L A/c.
5. Ledger records the transactions in a chronological order
Answer: False
Reason: Ledger records the transactions in analytical order. But journal records the transactions in a chronological order.
6. If the total debit side is greater than the total of credit side, we get a credit balance as opening balance.
Answer: False
Reason: If the total of debit side is greater than the total of credit side, we get a debit balance as the opening balance.
7. Ledger accounts of assets will always be debited when they are increased.
Answer: True
Reason: The increase to an asset shall be debited since the original balance is also debit.
1. Preparing trial balance is the third phase of accounting process.
Answer: True
Reason: Preparing trial balance is the third phase of accounting process which forms the base for the preparation of the final accounts.
2. Trial balance forms a base for the preparation of Financial statement.
Answer: True
Reason: Based on trial balance only, we can prepare financial statement.
3. Agreement of trial balance is a conclusive proof of accuracy.
Answer: False
Reason: Agreement of trial balance gives only arithmetical accuracy, there can still be errors in preparing the trail balance.
4. A trial balance will tally in case of compensating errors.
Answer: True
Reason: Since compensating errors cancel out due to their compensating nature of the
amounts, hence the Trial balance tallies.
5. A trial balance can find the missing entry from the journal.
Answer: False
Reason: A trial balance cannot find the missing entry from the journal.
6. Suspense account opened in a trial balance is a permanent account.
Answer: False
Reason: Suspense account opened in a trial balance is a temporary account
7. The balance of purchase returns account has a credit balance.
Answer: True
Reason: As purchases is debited, any returns shall be credited (treated in opposite way).
1. Transactions recorded in the purchase book include only purchases of goods on credit transactions.
Answer: True
Reason: Since cash purchases are taken to the cash book , it is only credit transactions that are recorded in the purchases book.
2. Transactions regarding the purchase of fixed asset are recorded in the purchase book.
Answer: False
Reason: Transactions regarding the purchase of fixed asset are not recorded in the purchase book, only the credit purchases of goods are recorded in it.
3. Cash sales are recorded in the sales book.
Answer: False
Reason: Credit sales are recorded in the sales book.
4. Subsidiary books are also known as the books of original entry.
Answer: True
Reason: Subsidiary books are maintained as an alternate to the journal.
5. Bills receivable book is a subsidiary book.
Answer: True
Reason: Bills receivable is one of the subsidiary book.
6. Return inward book is also known as purchase return book.
Answer: False
Reason: Return inward book is also known as sales return book.
7. Purchase of a second hand machinery will be recorded in purchase book.
Answer: False
Reason: Purchase of a second hand machinery will not be recorded in purchase book.
8. Total of sales return book may be posted to the debit side of sales account.
Answer: True
Reason: Since sales return is reduction from the total sales value, it is debited in the sales account.
9. If the sales are on a frequent basis, the transactions are recorded in the sales book.
Answer: True
Reason: When there are numerous transactions then there are subsidiary books like the sales book where there are recorded instead of regular journal entries.
1. Cash book is a subsidiary book as well as a principal book.
Answer: True
Reason: Since the balance is directly taken to the Trial balance from cash book. Hence, it is a subsiadiary book as well as principal book.
2. Two column cash book consists of two columns cash column & bank column.
Answer: True
Reason: Two column cash book consists of two columns either cash column & discount column or cash column & bank column.
3. Discount column of cash book is never balanced.
Answer: True
Reason: Discount column is totalled and transferred to the discount allowed or received account.
4. Contra entry is passed in a two column cash book.
Answer: False
Reason: Contra entry is passed in a three column cash book which includes bank and cash columns.
5. If the bank column is showing the opening balance on credit side, it is an overdraft.
Answer: True
Reason: The debit side of opening balance shows a favourable balance, whereas the credit balance is an unfavourable balance and treated as overdraft.
6. A cash book records cash transactions as well as credit transactions.
Answer: False
Reason: A cash book records only cash transactions.
7. Discount column of cash book records the trade discount.
Answer: False
Reason: Discount column of cash book records the cash discount. Trade discount is not shown in the books of accounts.
1. The method of rectification of errors depends on the stage at which the errors are detected.
Answer: True
Reason: There are 3 different stages when the mistakes are identified and then the rectification depends on the stage of identification of errors.
2. In case of error of complete omission, the trial balance does not tally.
Answer: False
Reason: In case of error of complete omission, the trial balance tallies.
3. When errors are detected after preparation of trial balance, suspense account is opened
Answer: True
Reason: In order to balance the difference of balances in the trial balance suspense account is opened.
4. When purchase of an asset is treated as an expense, it is known as error of principle
Answer: True
Reason: Where the accounts being debited is principally incorrect it is termed as error of principle.
5. Trial balance agrees in case of compensating errors.
Answer: True
Reason: Compensating errors cancel out each other when Trial balance is prepared as the mistake pertains to the same amount being credited and later debited on account of two different mistakes.
6. When amount is written on wrong side, it is known as an error of principle.
Answer: False
Reason: When amount is written on wrong side, it is known as an error of commission.
7. On purchase of old furniture, the amount spent on repairs should be debited to repairs account.
Answer: False
Reason: On purchase of furniture, the amount spent on repairs should be debited to furniture account as it is a capital expense.
8. ‘Profit & Loss adjustment account’ is opened to rectify the errors detected in the current accounting period.
Answer: False
Reason: ‘Profit & Loss adjustment account’ is opened to rectify the errors detected in the next accounting period.
9. Rent paid to landlord of the proprietors house, must be debited to ‘Rent account’.
Answer: False
Reason: Rent paid to land lord of the proprietors house, must be debited to ‘Drawings account’.
10. If the errors are detected after preparing trial balance, then all the errors are rectified through suspense account.
Answer: False
Reason: If the errors are detected after preparing trial balance, then all the errors are not rectified through suspense account. There may be principal errors, which can be rectified without opening a suspense account.
1. Bank Reconciliation is the process of reconciling cash column of the cash book and bank column of the cash book.
Answer: False
Reason: Bank Reconciliation Statement reconciles bank column of cash book with the balance in the pass book i.e. customer account in the books of bank.
2. There are 3 types of differences between cash book and pass book namely Timing, Transactions & Errors
Answer: True
Reason: These are the three broad categories.
3. Adjusting the cash book for any errors and/or omissions before preparing bank reconciliation is optional when the reconciliation is done at the end of the financial year.
Answer: False
Reason: Adjusting the cash book is mandatory when back reconciliation is done at the end of the financial year.
4. Debit balance in cash book is same as overdraft as per pass book.
Answer: False
Reason: Debit balance as per cash book should be represented by credit or favaourable balance in pass book.
5. Bank charges debited by the bank is an example of timing difference for the purposes of bank reconciliation.
Answer: False
Reason: Bank charges are example of the transactions that bank carries out by itself and the same has not been recorded in the cashbook until statement is obtained from the bank.
6. Overcasting of the debit side of the cash book is an example of a difference that is due to error.
Answer: True
Reason: Overcasting is an example of an error.
7. When we start bank reconciliation with a debit balance in cash book, then cheques issued but not yet presented should be added back to arrive at the balance as per pass book
Answer: True
Reason: Since the cheques issued would have been recorded as payments and bank balance was credited in cash book, we need to add it back as the same is not yet deducted from our bank balance.
8. The bank charges charged by the bank should be deducted when bank reconciliation statement is being prepared starting from a credit balance of pass book.
Answer: False
Reason: Bank charges should be added when we start with credit or favourable balance in pass book as bank would have debited the charges.
9. When the causes of differences between pass book balance and cash book is not known, then the bank reconciliation statement can be prepared by matching the two books and identifying any unticked items in both sets.
Answer: True
Reason: Since, we don’t know the causes of difference, matching the two statements is only efficient way to identify the difference.
10. While preparing the bank reconciliation statement starting with debit balance as per pass book or bank statement, the deposited cheques that are not yet cleared need not be adjusted.
Answer: False
Reason: Cheques deposited but not yet cleared should be subtracted from debit or unfavourable balance in pass book.
11. Cash book shows a debit balance of 50,000 and the only difference from the balance as shown in pass book relates to cheques issued for 60,000 but not yet presented for payment. The balance as per pass book should be 1,10,000
Answer: True
Reason: Cheques issued but not yet presented should be added back to a debit balance in cash book to arrive at pass book balance i.e. ₹ 50,000 + ₹ 60,000 = ₹ 1,10,000.
12. Overcasting of credit side of the cash book shall result in a higher bank balance in cash book when compared with pass book balance.
Answer: False
Reason: Overcasting of credit side means excessive payments are recorded and hence would lower the bank balance.
13. A cheque for 25,000 that was issued and was also presented for payment in same month but erroneously recorded on debit side of the cash book would cause a difference of 50,000 from the balance in pass book.
Answer: True
Reason: ₹ 25,000 payment is recorded as a receipt and hence it will have to be adjusted twice (once to nullify and then once to record actual payment) hence causing the difference of double amount.
14. A direct debit by bank on account of any payment as may be instructed by customer should be recorded on credit side of cash book.
Answer: True
Reason: It is an example of a payment instructed by customer to be directly debited by bank, and hence credited in the cash book.
15. Bank Reconciliation Statement can be prepared in two formats – “Balance” presentation and “Plus & Minus” presentation.
Answer: True
Reason: Reconciliation statement can be prepared in either of the two formats.
16. The difference between cash book & pass book that relates to errors are those mostly made by Bank.
Answer: False
Reason: Bank rarely makes mistakes, and hence differences that relate to errors are generally made in cash book.
17. A cheque for 80,000 that was discounted from bank was dishonoured and the bank charged 1,600 as the charges on account of same. While strating with debit balance in cash book for preparing bank reconciliation statement, we need to deduct 78,400 to reconcile with pass book.
Answer: False
Reason: We need to deduct ₹ 81,600 (i.e. both cheque returned & charges) from debit balance in cash book to arrive at balance as per pass book.
18. Interest on savings bank that is allowed or credited by bank is generally recorded in cash book prior to it being recorded by bank.
Answer: False
Reason: Interest allowed by bank is mostly recorded in cash book after the entry has been made in the pass book or bank statement.
19. A regular bank reconciliation discourages the accountants to be involved in any kind of funds embezzlement.
Answer: True
Reason: In absence of any reconciliation, the accountants can mis-utilize the funds temporarily by recording the entry without actual depositing the cash.
20. Timing difference relates the transactions that are recorded in the same period in both cash book and also the bank pass book.
Answer: False
Reason: Timing differences relate to the transactions that are recorded in cash book and pass book in two different periods.
1. Inventories are stocks of goods and materials that are maintained for mainly the purpose of revenue generation.
Answer: True
Reason: Inventories refers to stocks of goods and materials that are maintained in business for revenue generation.
2. A building is considered inventory in a construction business.
Answer: True
Reason: For a construction business, a building under construction will be inventory. The building is being built in the normal course of business and will eventually be sold as inventory.
3. Inventory is valued as carrying cost less percentage decreases.
Answer: False
Reason: Inventory is valued at lower of cost or net realizable value.
4. Management has daily information about the quantity and valuation of closing stock under physical Inventory System.
Answer: False
Reason: Under Perpetual Inventory System management have daily information of closing stock.
5. Periodic Inventory System is more suitable for small enterprises.
Answer: True
Reason: A periodic inventory system is suitable to small and micro enterprises, where physical counting of inventory is not a tedious process.
6. When closing inventory is overstated, net income for the accounting period will be understated.
Answer: False
Reason: When closing inventory is overstated, net income for the accounting period will be overstated.
7. Closing inventory = Opening inventory + Purchases + Direct expenses + Cost of goods sold.
Answer: False
Reason: Closing stock = Cost of goods sold - (Opening inventory + Purchases + Direct expenses).
8. Cost of inventories should comprise all cost of purchase.
Answer: False
Reason: Cost of inventories should comprise all cost of purchase, costs of conversion and other costs incurred in bringing the inventories to their present location and condition.
9. Inventory by-products, should be valued at net realisable value where cost of by products can be separately determined.
Answer: False
Reason: Inventory by-products, should be valued at net realisable value where cost of by products cannot be separately determined.
10. Abnormal amounts of wasted materials, labour or other production overheads expenses are included in the costs of inventories.
Answer: False
Reason: Abnormal amounts of wasted materials, labour or other production overheads expenses are generally not included in the costs of inventories.
11. Perpetual system requires closure of business for counting of inventory.
Answer: False
Reason: Periodic system requires closure of business for counting of inventory.
12. Periodic inventory system is a method of ascertaining inventory by taking an actual physical count.
Answer: True
Reason: Under Periodic inventory system actual physical count of inventory is taken of all the inventory on hand at a particular date.
13. The value of closing inventory under simple average price method is realistic as compare to LIFO.
Answer: True
Reason: Value of Closing stock as per average method is more realistic then LIFO.
14. The value of stock is shown on the assets side of the balance-sheet as fixed assets.
Answer: False
Reason: The value of stock is shown on the assets side of the balance-sheet as current assets. As it is realisable within 12 months.
15. Under inflationary conditions, FIFO will not show lowest value of cost of goods sold.
Answer: False
Reason: Under inflationary conditions, LIFO and weighted average will not show lowest value of cost of goods sold.
16. Under LIFO, valuation of inventory is based on the assumption that costs are charged against revenue in the order in which they occur.
Answer: False
Reason: Under FIFO, valuation of inventory is based on the assumption that costs are charged against revenue in the order in which they occur.
17. Valuation of inventory, at cost or net realisable value, whichever less, is based on the principle of Conservatism.
Answer: True
Reason: The conservatism concept states that one shall not account for anticipated profits but shall provide all prospective losses. Valuing inventory at cost or net realisable value whichever is less, therefore is based on principle of Conservatism.
18. Finished goods are normally valued at cost or market price whichever is higher.
Answer: False
Reason: Finished goods are normally valued at cost or market price whichever is lower.
1. Increase in market value of a fixed asset is one of the reasons for depreciation being charged.
Answer: False
Reason: It is the decrease in market value as one of the reasons for depreciation. Increase in market value may result in Revaluation.
2. Depreciation is a cash expenditure like other normal expenses..
Answer: False
Reason: Depreciation is not a cash expenditure like other normal expenses as it does not result in any cash outflow.
3. Cost of property, plant and equipment includes purchase price, refundable taxes & import duties after deducting any discount or rebate.
Answer: False
Reason: Non refundable taxes & duties form part of the cost.
4. Cost of fixed asset should also include cost of opening a new facility such as inauguration costs.
Answer: False
Reason: Inauguration costs shouldn’t be part of cost
5. Depreciation is charged with a constant amount under straight line method and charged with a constant percentage under diminishing balance method.
Answer: True
Reason: SLM method results in same amount and diminishing method involves same rate of depreciation.
6. In case an item of Property, Plant & Equipment is revalued, whole class of assets to which that asset being revalued belongs should be revalued.
Answer: True
Reason: Revaluation should be done for the whole class of the asset.
7. In case the carrying amount of an asset is decreased due to revaluation, such decrease should always be recognized in the Profit and Loss account.
Answer: False
Reason: Any decrease in value of asset on account of revaluation should be first debited to Revaluation Reserve, if any, and then to Profit & Loss account.
8. Akash purchased a machine for ₹ 12,00,000. Estimated useful life is 10 years and scrap value is ₹ 1,00,000. Depreciation for the first year using sum of the years digit method shall be ₹ 2,00,000.
Answer: True
Reason: Sum of years digit method depreciation is calculated as 10/55 x (12,00,000 – 1,00,000) = 2,00,000
9. Depreciation cannot be provided in case of loss, in a financial year.
Answer: False
Reason: Depreciation is a charge against profit and not an appropriation of profit.
Therefore, depreciation has to be provided for, even in case of loss in a financial year.
10. Providing for depreciation also helps in providing for accumulation of funds to facilitate the replacement at the end of its useful life.
Answer: True
Reason: Depreciation being non cash expense reduces the distributable profits and hence facilitates replacement of asset when required.
11. If the equipment account has a balance of ₹ 12,50,000 and the accumulated depreciation account has a balance of ₹ 4,00,000, the written down value of same shall be ₹ 16,50,000.
Answer: False
Reason: WDV = ₹ 12,50,000 - ₹ 4,00,000 = ₹ 8,50,000
12. Sum of the years digit method is an example of accelerated method of charging depreciation.
Answer: True
Reason: Higher depreciation is charged in earlier years under sum of the years digit method.
13. Over the life of an asset subject to depreciation, the accelerated method will result in less Depreciation Expense in early years and more depreciation in later years of its life.
Answer: False
Reason: It is vice versa as under diminishing balance method; higher depreciation is charged in beginning.
14. While depreciating land cost, Straight line method shall give more depreciation than the written down value.
Answer: False
Reason: Land is not depreciated.
15. Provision for depreciation account is debited at the time of recording the depreciation on an asset.
Answer: False
Reason: Provision for Depreciation account is credited while charging the depreciation.
16. If adequate maintenance expenditure is incurred with relation to running repairs of an asset, we need not charge any depreciation.
Answer: False
Reason: Depreciation is allocation of the cost of an asset over its useful life. Regular repairs may be required during its life are expensed and depreciation has to be charged anyways.
17. When a property, plant or equipment is sold then provision for depreciation account is debited, asset account is credited and any gain or loss is recorded to profit and loss account.
Answer: True
Reason: At the time of sale of an asset, respective asset account is credited with provision for depreciation account being debited and any resulting gain or loss being charged to profit & loss account.
18. While calculating the depreciation as per diminishing balance method, the salvage value of the asset at the end of its life is reduced from its cost.
Answer: False
Reason: Under diminishing balance method, salvage value is not considered initially as it assumes that at the end of the asset’s life the remaining value shall be its salvage value.
19. Any change in the estimated useful life of an asset should be accounted for as a change in an accounting estimate in accordance with Accounting Standards.
Answer: True
Reason: Any change in useful life of an asset is accounted for as a change in estimate.
20. An intangible asset is a non identifiable, non monetary asset.
Answer: False
Reason: An intangible asset is an identifiable non-monetary asset, held for use in production and supply of goods and services.
1. Bills payable account is a nominal account.
Answer: False
Reason: The bills payable account is a personal account that represents a liability.
2. Promise to pay is included in a bill of exchange.
Answer: False
Reason: Bill of exchange contains an order to pay the required amount and not a mere promise to pay.
3. Days of rebate are added to the due date to arrive at the maturity date.
Answer: False
Reason: 3 Days of grace are added to the due date to arrive at the maturity date.
4. Discount at the time of retirement of a bill is a gain for the drawee.
Answer: True
Reason: Discount at the time of retirement of a bill is a gain for the drawee and loss for the drawer.
5. Foreign bill is drawn in the country and payable outside the country.
Answer: True
Reason: When a bill is drawn in the country and is payable outside the country it is termed as a foreign bill.
6. Promissory note is different from bill of exchange because the amount is paid by the maker in case of former and by the acceptor in the later.
Answer: True
Reason: In case of the promissory note, it is generally the maker who makes the payment, but in case of the bill of exchange, the person accepting the bill shall be liable to make the payment to the holder of the bill.
7. A has drawn a bill on B. B accepts the same and endorses the bill to C.
Answer: False
Reason: B cannot endorse the bill to C as he is a drawee. Only A, the drawer can do so.
8. A bill given to a creditor is called bills payable.
Answer: True
Reason: A bill given to a creditor is called Bills Payable as the debtor commits to pay by giving a bill to creditor.
1. The income statement shows either net profit or net loss for a particular period.
Answer: True
Reason: Profit and loss account shows either net profit or net loss for a particular period.
2. Gains from the sale or exchange of assets are not considered as the revenue of the business.
Answer: False
Reason: Gains from the sale or exchange of assets are considered as the revenue of the business. But this revenue not in the ordinary course of business so it is capital receipts.
3. The salary paid in advance is not an expense because it neither reduces assets or nor increase liabilities.
Answer: True
Reason: The salary paid in advance is an asset it is not an expense because it neither reduces assets or nor increase liabilities.
4. A loss is an expenditure which does not bring any benefit to the concern.
Answer: True
Reason: A loss is an expenditure of the business which does not bring any gain to the business.
5. All liabilities which become due for payment within the year are classified as long-term liabilities.
Answer: False
Reason: All liabilities which become due for payment within one year are classified as current liabilities.
6. The term current asset is used to designate cash and other assets or resources which are reasonably expected to be realized or sold or consumed within one year.
Answer: True
Reason:Current assets are all the assets which are expected to be realized or sold or consumed within one year.
7. An asset gives rise to expenditure when it is acquired and to an expense when it is consumed.
Answer: True
Reason: When an asset is purchase capital expenditure is incurred and when the asset is put to use expenses are incurred in consumption.
8. If the balance of an account on the debit side of the trial balance where the benefit has already expired then it is treated as an expense.
Answer: True
Reason: Debit balance of accounts are treated as expenses whose benefit is already received or expired.
9. Sales less cost of goods sold = gross profit.
Answer: True
Reason: Gross profit is obtained by deducting cost of goods sold from sales.
10. If the debit side of the trading account exceeds its credit side then the balance is termed as gross profit.
Answer: False
Reason: If the debit side of the trading account exceeds its credit side then the balance is termed as gross loss.
11. The provision for bad debts is debited to Sundry Debtors Account.
Answer: False
Reason: The provision for bad debts is debited to debited to Profit and loss Account, in Balance Sheet it is shown either on liability side or deducted from the head Debtors.
12. The provision for discount on creditors is often not provided in keeping with the principle of conservatism.
Answer: True
Reason: According to the provision of conservatism provision is maintained for the losses to be incurred in future. Discount on creditors is an income so provision in not maintained.
13. The debts written off as bad, if recovered subsequently are credited to Debtors Account.
Answer: False
Reason: The debts written off as bad, if recovered subsequently are credited to Bad Debts Recovered Account and becomes an income.
14. The adjustment entry in respect of income received in advance is debit Income received in advance account and credit income account.
Answer: False
Reason: Income received in advance is reduces it from the concerned income in profit and loss account. And, it is shows it as a liability in the current balance sheet under the head Current Liabilities.
15. Premium paid on the life policy of a proprietor is debited to profit and loss account.
Answer: False
Reason: Premium paid on the life policy of a proprietor is to be debited to capital account, as it is personal expense.
16. Depreciation account appear in the trial balance is taken only to profit and loss account.
Answer: True
Reason: Depreciation is charge on each of the asset on a certain percentage. Depreciation is a charge to profit and loss account and should be debited to profit & loss account by crediting the respective assets. If it appears in trial balance then it is taken only to profit and loss account.
17. Personal purchases included in the purchases day book are added to the sales account in the Trading account.
Answer: False
Reason: Personal purchases included in the purchases day book are deducted from the purchases account in the Trading account.
18. Medicines given to the office staff by a manufacturer of medicines will be debited to salaries account.
Answer: True
Reason: Any benefit given to the staff is debited to the salary account.
19. Goods worth ₹600 taken by the proprietor for personal use should be credited to Capital Account.
Answer: False
Reason: Goods taken by the proprietor for personal use should be credited to Purchase Account as less goods are left in the business for sale.
20. If Closing Stock appears in the Trial Balance, the Closing inventory is then not entered in Trading Account. It is only shown in the Balance Sheet.
Answer: True
Reason: The closing Stock appears in the trial balance only when it is adjusted against purchases by passing the entry. In this case, closing stock is not entered in Trading Account and is shown only in Balance Sheet.
1. By-products valued at cost or net realisable value whichever is lower.
Answer: False
Reason: By-products generally have insignificant value as compared to the value of main product. Therefore, they are generally valued at net realizable value.
2. The manufacturing account is prepared to ascertain the profit or loss on the goods produced.
Answer: False
Reason: The objective of preparing Manufacturing Account is to determine manufacturing costs of finished goods for assessing the cost effectiveness of manufacturing activities.
3. If there remain unfinished goods at the beginning and at the end of the accounting period, cost of such unfinished goods is shown in the Manufacturing Account.
Answer: True
Reason: Manufacturing account deals with the raw material and work in progress.
4. Raw Material Consumed = Opening inventory of Raw Materials + Purchases – Closing inventory of Raw Materials.
Answer: True
Reason: Raw Material consumed is arrived at after adjustment of opening and closing inventory of raw materials and purchases.
5. The Trading Account will show the quantities of finished goods, raw materials and workin-progress.
Answer: False
Reason: The Trading Account will show the quantities of finished goods manufactured and sold and the opening and closing inventory. It will not show the quantity of raw materials or work-in-progress.
6. Overhead is defined as total cost of direct material, direct wages and direct expenses.
Answer: False
Reason: Overhead is defined as total cost of indirect material, indirect wages and indirect expenses.
7. Manufacturing A/c is prepared by an enterprise engaged in trading activities.
Answer: False
Reason: Manufacturing A/c is prepared by the entities engaged in manufacturing activities.
1. The Receipts and payment account for a non-profit organization follows the accrual concept of accounting.
Answer: False
Reason: It depicts the cash system of accounting rather than the accrual system, as the cash receipts and payments pertaining to any year are entered in the Receipts and payments account. The principle of accrual is not followed with regard to the receipts and payments account of a non-profit organization.
2. Both the revenue and capital nature transactions are recorded in the Income and expenditure account.
Answer: False
Reason: The income and expenditure account records only the revenue income and expenditure. The capital transactions are being recorded in the Balance sheet.
3. Sale of grass by a sports club is to be treated as sale of an asset.
Answer: False
Reason: The grass for a sports club is not a capital item, hence the sale of such grass shall be treated as a revenue receipt.
4. Subscriptions outstanding for the current year are disclosed under the Fixed assets side of the Balance sheet.
Answer: False
Reason: They are disclosed under the current assets of the Balance sheet as they will be paid within the next year and not to be treated as non-current assets.
5. Receipts and payments account gives the details about the expenses outstanding for the year.
Answer: False
Reason: Receipts and payments account gives information about the expenses paid in cash for the current year, previous or the next year. It is only from the additional information we identify the outstanding expenses.
6. Adjustments in the form of additional information shall be adjusted in the final accounts of a Non- profit organisation only in one place.
Answer: False
Reason: Additional information means that information which has been identified just before the preparation of the final accounts. As NPO follows the double entry system of book keeping, there shall be 2 effects for each of the additional information.
7. Tournament expenses incurred are more than the Tournament fund, then the excess to be shown as an asset in the closing Balance sheet.
Answer: False
Reason: The excess of expenditure over the tournament fund shall be debited to the income and expenditure account and not taken to the closing balance sheet.
8. For Non-profit organisation, Excess of income over expenditure in the Income and Expenditure account is termed as profit.
Answer: False
Reason: The excess of the income over the expenditure is called as Surplus and not profit for an Non-profit organisation.
9. Surplus of non-profit organizations is distributed among its members.
Answer: False
Reason: The Non-profit organisation credits the surplus earned in a year to the general fund maintained by it.
10. Tournament fund, building fund, library fund is based on the fund based accounting.
Answer: True
Reason: It is Fund based accounting that records the fund balances in the balance sheet.
11. Subscription fees refers to the one-time fees paid by the members to get admission for the benefits of the club.
Answer: False
Reason: Subscription is a regular fees paid by the members to keep the membership alive.
12. Token payment made to a person, who voluntarily undertakes a service which would normally be paid in case of profitable organization is termed as Honorarium.
Answer: True
Reason: Honorarium refers to the nominal amount paid for the services with a noncommercial intent.
13. An Insurance company is an example of non-profit organization.
Answer: False
Reason: Insurance Company has a profit motive, hence it is not a non-profit organization.
14. Part amount of entrance fees which is to be capitalized shall be disclosed in the income and expenditure account.
Answer: False
Reason: It shall be shown in the Balance sheet- where it is to be capitalized.
15. Both the income and expenditure of the current and the previous year are recorded in the Income and Expenditure account.
Answer: False
Reason: It is only the current year income and expenditure which is recorded in the Income and Expenditure account as per the accrual concept.
16. Amount received as donation by an Non-profit organisation under the will of a deceased person is termed as legacy.
Answer: True
Reason: While on the death bed, if there is any will written that the assets of a person shall be donated to any NPO- then such a donation to the NPO, is termed as Legacy.
17. Where a Non-profit organisation has a separate trading activity, the profit/loss from the trading account shall be transferred to Income and Expenditure Account at the time of consolidation.
Answer: True
Reason: Where in case of the trading activities, the profit /loss from such activity to be transferred to the Income and expenditure account in case of consolidated accounts.
18. Not for profit concerns concentrate their efforts to maximize the profit earning avenues.
Answer: False
Reason: The Non-profit organisation has its very existence to serve the members and the society. Profit earning shall never be its motive.
19. All the receipts are of revenue nature in case of Non-profit organisation.
Answer: False
Reason: Receipts can be both of revenue as well as capital nature. Receipts of both the nature are recorded in the receipts and payments account.
20. There is opening balance of Income and expenditure account.
Answer: False
Reason: It represents a nominal account and is prepared in accordance with the accrual concept, hence there can be no opening balances.
1. A Trial Balance cannot be drawn up from books kept under Single Entry.
Answer: True
Reason: Since incomplete records are maintained, trial balance cannot be prepared
2. Nominal Accounts are kept under Single Entry System.
Answer: False
Reason: Under the single entry system of bookkeeping, generally cash book and personal accounts of creditors and debtors are maintained, and no other ledger is maintained.
3. Single Entry System can be adopted by small firms.
Answer: True
Reason: A single entry system is the one where financial transactions are recorded as a single entry in a log and is usually used by new small businesses.
4. Profit under single entry system is always correct and accurate.
Answer: False
Reason: Profit under single entry system is only an estimate based on available information and correct profits cannot be determined.
5. Profits computed under single entry system by different business entities are not comparable.
Answer: True
Reason: Since entry system has no fixed set of principles for recording the financial transaction, different organisations maintain records as per their needs. Hence their accounts are not comparable.
1. In absence of any agreement partners share profits of the business in the ratio of their capital contribution.
Answer: False
Reason: In absence of any agreement partners share profits equally and not in capital contribution ratio.
2. Profit sharing ratio and capital contribution ratio need not be same.
Answer: True
Reason: Profit sharing can be different from the that of the capital introduced by each of the partner. Not necessary that partner contributing more capital should have a higher profit sharing ratio and vice versa.
3. Every partnership firm must register itself with Registrar of firms.
Answer: False
Reason: Registration of firms is not compulsory under Indian Partnership Act, 1932.
4. A partner can advance loan to the partnership firm in addition to capital contributed by him.
Answer: True
Reason: Where the partnership deed is absent, then the interest shall be paid at 6% per annum. So the interest on the loan to be paid to the partner.
5. A partner can demand interest on capital even if it is not provided in the partnership deed.
Answer: False
Reason: Interest on capital can be paid only if it is provided in the partnership deed.
6. If a partner does not take part in day to day business activities of the firm then he is not entitled to any share of profit.
Answer: False
Reason:Every partner need not take part in the business. Even if a partner does not take part in the business he is entitled for his share of profit.
7. Interest should be paid @ 6% p.a. on partners’ loan even if it is not provided in the partnership deed.
Answer: True
Reason: In absence of Partnership deed, Interest at the rate of 6%.p.a is to be allowed on a partner’s loan to the firm.
8. Husband and wife cannot be partners in the same firm.
Answer: False
Reason: Husband and wife can be partners in the same firm.
9. One senior partner is Principal and other partners are his agents.
Answer: False
Reason: There is no senior or junior partner. Every partner is agent/principal of other partners.
10. Partners are the agents of the firm and each other.
Answer: True
Reason: Concept of agency applies to every partner and the firm as well. So each partner is a principal to and agent of every other partner and to the firm.
1. Goodwill is intangible asset therefore it cannot be valued.
Answer: False
Reason: Even though Goodwill is intangible asset it can be valued in terms of money.
2. Goodwill is valued whenever there is change in the profit sharing ratio among the partners.
Answer: True
Reason: Goodwill has to be valued every time whenever there is a reconsitution.
3. Goodwill is the value of reputation of a firm in respect of profits expected in future over and above the normal rate of profits.
Answer: True
Reason: Goodwill is the brand image the firm has in the market due to which it enjoys an advantageous position over the other players in the market.
4. At the time of admission or retirement of a partner, goodwill can be raised in the books of accounts and shown as an asset.
Answer: False
Reason: At the time of addmission or retirement of a partner, goodwill should not be raised in the books of account of partnership firm because no consideration in money or money worth has been paid for it.
5. Only simple average method can be used for valuation of goodwill.
Answer: False
Reason: Weighted average profit method, capitalisation method, super profits methods also can be used for valuation of Goodwill.
6. Super profit means excess of actual average profit over normal profit.
Answer: True
Reason: Super Profit means excess profit that can be earned by the firm over and above the normal profit usually earned by similar circumstances.
7. Normal profit means profit earned by similar companies in the same industry.
Answer: True
Reason: The rate of return is considered as an average for the industry, which is applied to the capital employed in the concerned firm.
8. Normal profit depends upon Normal Rate of Return and past profits.
Answer: False
Reason: Normal profit depends upon Normal rate of return only and not on past profits.
9. At the time of admission/retirement of a partner, since goodwill can not be raised in the books of accounts is recorded through capital accounts of the partners.
Answer: True
Reason: Generally, the goodwill at the time of admission is adjusted through the capital accounts and not shown in the books in the firm.
10. At the time of admission of a partner, goodwill brought in by the new partner is shared equally by old partners.
Answer: False
Reason: Goodwill brought in by new partner is shared by old partners in scarificing ratio and not equally.
1. A newly admitted partner does not have same rights as old partners.
Answer: False
Reason: All the partners have same rights at all times, unless contrary is provided in the partnership deed/or agreed by the partners.
2. When a new partner is admitted, old partners have to forego certain share in profits of the firm, this is called as sacrifice ratio.
Answer: True
Reason: With every new partner, remaining old partners have to foregone a proportion in their share which is called as sacrificing ratio.
3. Revaluation account is also called as Profit and Loss Adjustment Account.
Answer: True
Reason: Revaluation is also called as profit and loss adjustment account.
4. Any appreciation in the value of an asset is credited to Revaluation account.
Answer: True
Reason: Increase in asset is an income hence credited to revaluation account.
5. All the partners may decide not to change the values of assets and liabilities in the books of accounts.
Answer: True
Reason: This can be done by opening Memorandum Revaluation Account.
6. New partner is entitled to have share in reserves appearing in the balance sheet prior to his admission.
Answer: False
Reason: New partner is not entitled to have any share in the reserves of the firm prior to his admission. Such reserves are distributed to old partners in their old profit sharing ratio.
7. If revaluation account shows credit balance then it represents profit and therefore it is credited to all partners equally.
Answer: False
Reason: If revaluation account shows credit balance then it represents profit and therefore it is credited to all partners in their profit sharing ratio and not equally.
8. New partner brings necessary amount as his capital.
Answer: True
Reason: Every incoming partner shall bring in some amount of capital for the firm
9. New partner is entitled to share in revaluation profit.
Answer: False
Reason: New partner is not entitled to profit on revaluation, it belongs to old partners in their old profit sharing ratio.
1. Business of a partnership has to be closed if any one of the partners retires.
Answer: False
Reason: Business of a partnership is not closed if any one of the partners retires, remaining partners continue to carry on the business.
2. At the time of retirement of a partner no special treatment is required for any reserves appearing in the Balance Sheet.
Answer: False
Reason: At the time of retirement of a partner all the reserves appearing in the balance sheet are transferred to all the partners in their old profit sharing ratio.
3. After retirement of a partner, profit sharing ratio of continuing partners remains the same.
Answer: False
Reason: After retirement of a partner, profit sharing ratio of continuing partners does not remain the same.
4. If any partner wants to retire from the business, he must retire on 1st day of the accounting year.
Answer: False
Reason: A partner can retire on any day as per his own wish.
5. Retiring partner has to forego his share of goodwill in the firm.
Answer: False
Reason: Retiring partner is entitled to his share of goodwill in the firm.
6. If a partner retires in between the accounting year then he is not entitled to any profit from the date of beginning of the year till his date of retirement.
Answer: False
Reason: If a partner retires in between the accounting year then he is certainly entitled to the profit from the date of beginning of the year till his date of retirement.
7. If the firm has taken any joint life policy then it is to be surrendered at the time of retirement of a partner.
Answer: True
Reason: The firm is eligible for the surrender value on the Joint Life Policy taken on the partners at the time of their retirement.
8. Any joint life policy reserve appearing in the Balance Sheet is credited to all the partners in their old profit sharing ratio.
Answer: True
Reason: As per the surrender policy method, the JLP reserve is distributed to the partners in their profit sharing ratio through capital account.
9. No revaluation account is necessary on retirement of a partner.
Answer: False
Reason: Revaluation account is necessary on retirement of a partner.
10. Profit on revaluation is credited to continuing partners, retiring partner is not entitled to any profit on revaluation.
Answer: False
Reason: Profit on revaluation is credited to all the partners in their profit sharing ratio.
1. Business of partnership comes to an end on death of a partner.
Answer: False
Reason: Surviving partners continue to carry on the business.
2. Legal heir of a deceased partner automatically becomes partner in the firm.
Answer: False
Reason:Legal heirs of deceased partners are entitled to dues of the deceased partner.
3. A revaluation account is opened in the books of accounts on death of a partner.
Answer: True
Reason: To find out the actual values of the assets and liabilities, revaluation account is prepared.
4. Any reserve appearing in the balance sheet on the date of death of a partner is transferred to all partners capital account in their profit sharing ratio.
Answer: True
Reason: reserves belong to the partners in the same manner the capital contributed by them. Hence it is distributed to them through the capital account.
5. Legal heirs of a deceased partner are entitled to his capital account balance only.
Answer: False
Reason: Legal heirs of a deceased partner are entitled to all the dues of deceased partner.
6. It is not necessary to adjust goodwill on death of a partner.
Answer: False
Reason: It is very much necessary to adjust goodwill on death of a partner.
7. On death of a partner continuing partners can agree to change their capital contribution and profit sharing ratio.
Answer: True
Reason: Yes, it can be continued in the earlier share or in new share- in either case it leads to computing a new profit sharing ratio
8. On death of a partner, the firm gets surrender value of the joint life policy.
Answer: False
Reason: On death of a partner the firm gets full value of sum assured of the joint life policy.
9. Only legal heirs of deceased partner are entitled to amount received from joint life policy.
Answer: False
Reason: All the partners are entitled to amount received from joint life policy.
1. Books of accounts are closed in dissolution of partnership.
Answer: False
Reason: Books of accounts are not closed in dissolution of partnership but are closed in case of dissolution of partnership firm.
2. On the dissolution of a partnership, firstly, the assets of the firm are realized. Then the amount realized, is applied first towards repayment of liabilities to outsiders.
Answer: True
Reason: On the dissolution of a partnership, firstly, the assets of the firm, are realized. Then the amount realized, is applied first towards repayment of liabilities to outsiders and loans taken from partners; afterwards, the capital contributed by partners is repaid.
3. In event of the dissolution of the firm, the business ceases to end. In event of dissolution of the partnership, the partnership is reconstituted and the business discontinues.
Answer: True
Reason: In event of the dissolution of the firm, the business ceases to end. However, in event of dissolution of the partnership, the business continues as usual, but the partnership is reconstituted.
4. Expenses of dissolution on realization of assets are credited to the Realization Account.
Answer: False
Reason: Expenses of dissolution on realization of assets are debited to the Realization Account.
5. Revaluation Account is prepared at the time of dissolution of partnership but Realization Account is prepared at the time of dissolution of partnership firm.
Answer: True
Reason: Revaluation Account is prepared at the time of dissolution of partnership but Realization Account is prepared at the time of dissolution of partnership firm.
1. Every public company is a listed company.
Answer: False
Reason: Listed companies are those which are listed on the stock exchange. Shares of listed companies are open to general public. Every listed company is a public company but every public company is not a listed company.
2. Shares of a private company are not listed on stock exchange.
Answer: True
Reason: Only the shares of public company are listed on stock exchange. Every listed company is a public company.
3. It is not mandatory to incorporate a company under the companies act.
Answer: False
Reason: It is mandatory to incorporate a company under the Companies Act. Without such incorporation, a company cannot come into existence.
4. Company is an artificial, legal person created by law.
Answer: True
Reason: Company comes into existence through the operation of law. It is a separate entity distinct from it’s members.
5. Death, insolvency or change of members affects the existence of a company.
Answer: False
Reason: Company is a separate legal entity created by law. Death, insolvency or change of member does not affect it’s existence.
6. If the shares are fully paid-up by the shareholder, he is subject to no further liability.
Answer: True
Reason: Liability of shareholders is limited to the extent of the unpaid share capital. So, if shares are fully paid-up, he is subject to no further liability
7. Public limited company has restrictions on transferability of shares.
Answer: False
Reason: Shares of public company are freely transferable. Transferability of shares is restricted in a private limited company.
8. Financial statements of company show the financial position of the business.
Answer: True
Reason: Financial statements give a true & fair view of the state of affairs of the company. Financial statements include profit and loss account, balance sheet, etc.
9. Schedule I gives proforma of Balance Sheet.
Answer: False
Reason: Schedule III Part I explains proforma of Balance Sheet.
10. Schedule III prescribes the format of Directors’ Report
Answer: False
Reason: Schedule III Part I explains proforma of Balance Sheet and Profit and Loss.
11. Financial statements need to be true and correct as per Companies Act.
Answer: False
Reason: As per Section 128, every company shall prepare financial statement for every financial year which give a true and fair view of the state of the affairs of the company.
1. Liability of a holder of shares is limited to the face value of shares acquired by them.
Answer: False
Reason: Liability of the holder of shares is limited to the issue price of shares acquired by them.
2. Authorised capital appears in the balance sheet at face value.
Answer: True
Reason: Authorised capital is the amount of capital mentioned in ‘capital clause’ of the ‘Memorandum of Association’. Authorised capital is considered only as presentation and not considered in total of balance sheet.
3. The rate of dividend on preference shares may vary From year to year.
Answer: False
Reason: Rate of preference dividend is always fixed.
4. A company may issue shares at a discount to the public in general.
Answer: False
Reason: According to Section 53 of the Companies Act, 2013, a Company cannot issue shares at a discount except in the case of issue of sweat equity shares (issued to employees and directors). Thus any issue of shares at discount shall be void.
5. Sweat equity shares are those which are issued to employees & directors at a discount.
Answer:True
Reason: According to Section 53 of the Companies Act, 2013, a Company cannot issue shares at a discount except in the case of issue of sweat equity shares (issued to employees and directors).
6. As per table F, rate of interest on calls in arrears is 12%.
Answer: False
Reason: As per table F, rate of interest on calls in arrears is 10%.
7. As per Table F, rate of interest on calls in advance is 10%.
Answer: False
Reason: As per Table F, rate of interest on calls in advance is 12%.
8. Non-participating preference shareholders enjoy voting rights.
Answer: False
Reason: A share on which only a fixed rate of dividend is paid every year, without any accompanying additional rights in profits and in the surplus on winding-up, is called 'Non-participating Preference Shares. Non-participating preference shareholders do not enjoy voting rights.
9. Forfeited shares are available to the company for the purpose of resale.
Answer: True
Reason: Reissue of forfeited shares is not allotment of shares but only a sale.
10. Loss on reissue should exceed the forfeited amount.
Answer: False
Reason: Loss on re-issue should not exceed the forfeited amount.
1. Debenture holder are the owners of the company.
Answer: False
Reason: Debenture holder are the creditors of the company.
2. Perpetual debentures are payable at the time of liquidation of the company.
Answer: True
Reason: Perpetual debentures, also known as irredeemable debentures are not repayable during the life time of the company.
3. Registered debentures are transferable by delivery
Answer: False
Reason: Registered debentures are not easily transferable by delivery. Bearer debentures are transferrable by delivery.
4. When companies issue their own debentures as collateral security for a loan, the holder of such debenture is entitled to interest only on the amount of loan and not on the debentures
Answer: True
Reason: In case the company cannot repay its loan & the interest thereon on the due date, the lender becomes debenture holder & then only he is entitled to interest on debentures.
5. Debentures suspense account appears on liability side of balance sheet.
Answer: False
Reason: Debentures suspense account appears on asset side of balance sheet under noncurrent asset.
6. If a company incurs loss, then it does not pay interest to the debenture holders.
Answer: False
Reason: Even if the company incurs loss or earns profit, it has to pay the interest on debentures.
7. At the time of liquidation, debenture holders are paid off after the shareholders.
Answer: False
Reason: At the time of liquidation, debenture holders are paid off before shareholders on priority basis.
8. Convertible debentures can be converted into equity shares.
Answer: True
Reason: Convertible debentures can be converted into equity share after a certain period of time from the date of its issue.
9. Redeemable debentures are not payable during the life time of the company.
Answer: False
Reason: These debentures are repayable as per the terms of issue, for example, after 8 years from the date of issue.
10. Debentures can be issued for a consideration other than for cash, such as for purchasing land, machinery etc.
Answer: True
Reason: Debentures can be issued for a consideration other than for cash, such as for purchasing land, machinery etc.
1. Earning per share gets increased after bonus issue.
Answer: False
Reason: Earnings per share gets decreased after bonus issue.
2. Issued share capital including issue of rights shares and bonus shares may be more than the Authorised capital.
Answer: False
Reason: Issued share capital including issue of rights shares and bonus shares is always less than or equal to Authorised capital.
3. Rights issue of shares results in decrease of market value of per share in comparison to market price before rights issue.
Answer: True
Reason: Rights issue of shares results in decrease of market value of per share in comparison to market price before rights issue.
4. Right shares are normally offered at a price more than the cum-right value of the share, causing dilution in its value post-right issue.
Answer: False
Reason: Right shares are normally offered at a price less than the cum-right value of the share, causing dilution in its value post-right issue.
1. When shares are redeemed by utilising distributable profit, an amount equal to the face value of shares redeemed is transferred to Capital Reserve account by debiting the distributable profit.
Answer: False
Reason: When shares are redeemed by utilising distributable profit, an amount equal to the face value of shares redeemed is transferred to Capital Redemption Reserve account by debiting the distributable profit.
2. A company who prepares financial statements in compliance with Accounting Standards under Section 133 of the Companies Act, 2013, it cannot utilize securities premium for the purpose of providing for premium on the redemption of Redeemable Preference shares of the Company.
Answer: True
Reason: A company who prepares financial statements in compliance with Accounting Standards under Section 133 of the Companies Act, 2013, it cannot utilize securities premium for the purpose of providing the premium on the redemption of redeemable preference shares.
3. The balance in forfeited shares account can be used for transfer to capital redemption reserve account.
Answer: False
Reason: The balance in Forfeited shares account cannot be used for transfer to capital redemption reserve account.
4. Capital redemption reserve cannot be used for writing off miscellaneous expenses and losses.
Answer: True
Reason: Capital redemption reserve cannot be used for writing off miscellaneous expenses and losses.
1. Amounts credited to the debenture redemption reserve may be utilised by the company for any purpose.
Answer: False
Reason: Amounts credited to the debenture redemption reserve should not be utilised by the company for any purpose except for the purpose other than for redemption of debentures.
2. All India Financial Institutions (AIFIs) regulated by Reserve Bank of India and Banking Companies for both public as well as privately placed debentures need not create any Debenture Redemption Reserve (DRR).
Answer: True
Reason: All India Financial Institutions (AIFIs) regulated by Reserve Bank of India and Banking Companies for both public as well as privately placed debentures need not create any DRR.
3. Under payment in instalments method, the payment of entire debenture is made in one lot.
Answer: False
Reason: under payment in instalments method, the payment of specified portion of debentures are made in instalments at specified intervals.
4. At redemption of debentures, DRR should be transferred to general reserve.
Answer: True
Reason: DRR is transferred to general reserve at the time of redemption of debentures.
Ruchika Saboo
An All India Ranker (AIR 7 - CA Finals, AIR 43 - CA Inter), she is one of those teachers who just loved studying as a student. Aims to bring the same drive in her students.
Ruchika Ma'am has been a meritorious student throughout her student life. She is one of those who did not study from exam point of view or out of fear but because of the fact that she JUST LOVED STUDYING. When she says - love what you study, it has a deeper meaning.
She believes - "When you study, you get wise, you obtain knowledge. A knowledge that helps you in real life, in solving problems, finding opportunities. Implement what you study". She has a huge affinity for the Law Subject in particular and always encourages student to - "STUDY FROM THE BARE ACT, MAKE YOUR OWN INTERPRETATIONS". A rare practice that you will find in her video lectures as well.
She specializes in theory subjects - Law and Auditing.
Yashvardhan Saboo
A Story teller, passionate for simplifying complexities, techie. Perfectionist by heart, he is the founder of - Konceptca.
Yash Sir (As students call him fondly) is not a teacher per se. He is a story teller who specializes in simplifying things, connecting the dots and building a story behind everything he teaches. A firm believer of Real Teaching, according to him - "Real Teaching is not teaching standard methods but giving the power to students to develop his own methods".
He cleared his CA Finals in May 2011 and has been into teaching since. He started teaching CA, CS, 11th, 12th, B.Com, M.Com students in an offline mode until 2016 when Konceptca was launched. One of the pioneers in Online Education, he believes in providing a learning experience which is NEAT, SMOOTH and AFFORDABLE.
He specializes in practical subjects – Accounting, Costing, Taxation, Financial Management. With over 12 years of teaching experience (Online as well as Offline), he SURELY KNOWS IT ALL.
"Koncept perfectly justifies what it sounds, i.e, your concepts are meant to be cleared if you are a Konceptian. My experience with Koncept was amazing. The most striking experience that I went through was the the way Yash sir and Ruchika ma'am taught us in the lectures, making it very interesting and lucid. Another great feature of Koncept is that you get mentor calls which I think drives you to stay motivated and be disciplined. And of course it goes without saying that Yash sir has always been like a friend to me, giving me genuine guidance whenever I was in need. So once again I want to thank Koncept Education for all their efforts."
"Hello everyone, I am Kaushik Prajapati. I recently passed my CA Foundation Dec 23 exam in first attempt, That's possible only of proper guidance given by Yash sir and Ruchika ma'am. Koncept App provide me a video lectures, Notes and best thing about it is question bank. It contains PYP, RTP, MTP with soloution that help me easily score better marks in my exam. I really appericiate to Koncept team and I thankful to Koncept team."
"Hi. My name is Arka Das. I have cleared my CMA Foundation Exam. I cleared my 12th Board Exam from Bengali Medium and I had a very big language problem. Koncept Education has helped me a lot to overcome my language barrier. Their live sessions are really helpful. They have cleared my basic concepts. I think its a phenomenal app."
"I cleared my foundation examination in very first attempt with good marks in practical subject as well as theoretical subject this can be possible only because of koncept Education and the guidance that Yash sir has provide me, Thank you."
